The Consumer Satisfaction Standard

For the past few years, social scientists have been arguing over the One True Measure of consumer welfare. Most economists still cling to the Demonstrated Preference Standard: If A buys X, then X makes A better off by definition. Psychologists and psychologically-minded economists have been pushing the Happiness Standard: If A buy X and feels happier as a result, then and only then is A better off.

I think both standards have some merit. But I'd like to suggest a middle way. I call it the Consumer Satisfaction Standard. According to this standard, if A buys X, and would do so if he had the chance to make the decision over again, then X makes A better off. The Consumer Satisfaction Standard is less tautologous than the Demonstrated Preference Standard; it allows for the possibility - which we often observe in real life - that a person will not be a satisfied customer. At the same time, if someone complains about X but keeps buying it, the Consumer Satisfaction Standard treats his grousing as empty verbiage.

I started thinking about the Consumer Satisfaction Standard while writing Selfish Reasons to Have More Kids. By the Demonstrated Preference Standard, every kid we have makes us better off - and every kid we don't have would have would have made us worse off. By the Happiness Standard, every kid we have makes us slightly worse off - at least on average. By the Demonstrated Preference Standard, however, kids turn out to be a great deal. Why? Because over 90% of people who have kids would do it over again - and over 70% of people over the age of forty who didn't have kids wish they did.

Question: If you applied the Consumer Satisfaction Standard more broadly, what decisions would look the best - and the worst?

Comments and Sharing

How does this work with products that induce chemical addiction? Or a consumer susceptible to dependence issues?

I can be alcoholic and bemoan my alcoholism, but my continued consumption of alcohol would still make me Better Off under this standard. This would still be so even if I were willing to buy a restriction on my ability to consume alcohol. This doesn't seem right.

What about the effects of cultural pressure? In the auto industry, many people buy a certain brand because "We're Chevy people." I suppose fitting in creates a certain level of happiness, but I'm not sure it's an accurate measure.

I like the idea because it seems like economists don't take consumer ignorance and preference discovering into account. I am highly skeptical of using happiness because of hedonic adaptation. I suppose it makes a plausible club to use to drive us towards socialism, or at least, steeper progressive taxes, but I think that is the wrong conclusion to draw given that, for example, people who have become disabled rebound from nearly all of their lost happiness. The better lesson is that we have a happiness set point and it only changes to provide alerts for acute conditions, not chronic ones.

The Happiness Standard is better than Demonstrated Preference. The latter overlooks the fact that consumers sometimes act altruistically: they voluntarily do something they know will make them worse off, for the sake of some other person or people, or some abstract principle to which they are committed, or the like.

Bryan's Consumer Satisfaction Standard suffers from this same defect. Also, it fails to specify *when* the consumer is to be asked whether he endorses his earlier decision (which, I assume, is what Bryan has in mind by "making the decision over again").

A special case of my altruism point: I have heard a number of divorced people say, I made a mistake marrying X, but I can't wish it hadn't happened because I love the children who were born of that marriage.

The Happiness Standard is better than Demonstrated Preference. The latter overlooks the fact that consumers sometimes act altruistically: they voluntarily do something they know will make them worse off, for the sake of some other person or people, or some abstract principle to which they are committed, or the like.

Bryan's Consumer Satisfaction Standard suffers from this same defect. Also, it fails to specify *when* the consumer is to be asked whether he endorses his earlier decision (which, I assume, is what Bryan has in mind by "making the decision over again").

A special case of my altruism point: I have heard a number of divorced people say, I made a mistake marrying X, but I can't wish it hadn't happened because I love the children who were born of that marriage.

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